Commentary: Lines struggle to cut capacity in Asia-Europe

Monday, February 11, 2013

Feb. 1’s accidental engine space flooding on one of the world’s largest and most expensive to operate container vessels provided an unexpected insight into the commercial difficulties facing owners like Maersk Line due to the imbalance between the global supply of ship capacity and cargo demand.
A spokesman for the line reportedly confirmed that at the time of the accident, having entered Suez outbound for Asia, the 15,500-TEU Emma Maersk was loaded with 13,537 TEUs and that half of these were empty.
Taken at face value this puts the ship’s commercial load factor of revenue-earning cargo at somewhere down below 50 percent at a time when freight rates are not particularly good either. Futhermore, this ship was designed less than 10 years ago to operate in a loop of eight identical sisters, each achieving 6.5 roundtrip voyages per year. Instead of this, it's now steaming so slowly in a loop of 12 ships that it can generate revenue from only 4.3 roundtrip voyages per year, sacrificing another 34 percent of its vaunted potential earning productivity.
Taking weekly capacity in the trade towards the end of third quarter 2012 as a benchmark, a total of 243,907 TEUs were being provided in 26 main Asia-North Europe loops and 84,848 TEUs in 12 Asia-Mediterranean loops. Since then, three North Europe loops have disappeared, one each from Maersk (AE9), the G6 (AE3) and CKYH (NE4), reducing weekly North Europe capacity by around 22,000 TEUs, or 9 percent. In addition, Maersk terminated its AE5 loop to the Mediterranean, reducing overall capacity there by 7.5 percent, down 6,361 TEUs.
When it announced the "temporary suspension" of its AE9 North Europe loop, Maersk said the loop would be returning from early December. To the other lines, this may have sounded something like a threat if they did not do something more to help contain capacity. In any event, a fairly substantial program of skipped sailings emerged over the 14-week period between Nov. 26 and Feb 25. Of the total 33, 19 were to North Europe and 12 to the Mediterranean. It is interesting to see who contributed most through skipped sailings and cut loops to reduce capacity.

Sources: Research by BlueWater Reporting.

Taken together, the skipped sailings contributed an average capacity reduction of 20,428 TEUs per week, or 6 percent overall. To North Europe, CMA CGM and Mediterranean Shipping Co. each cancelled one of their four joint weekly sailings, achieving 4 percent on benchmark. Evergreen and Hanjin skipped five sailings to drop 12 percent. In addition to dropping their Loop 3, the G6 partners skipped five sailings to cut capacity 21 percent on benchmark. Maersk dropped thee sailings and AE9 to cut 17 percent against benchmark. The CKYH partners added three skipped sailings in addition to dropping NE4 to achieve 15 percent. China Shipping cut one sailing, cutting back 3 percent.
In the Mediterranean, in addition to dropping AE5, Maersk skipped two sailings on a joint loop with CMA CGM; CKYH has cut six sailings; and between them the G6 lines have skipped four sailings. MSC, Zim, and UASC/CSCL, with half the benchmark capacity between them, have all skipped no sailings at all. Nor, apart from Maersk, has any line cut out any complete loop at. – BlueWater Reporting, Francis Phillips